In American Millennium v. Berganza, the Court examined the case where a drywall subcontractor, Mr. Berganza, obtained workers’ compensation coverage with American Millennium Insurance Company on January 18, 2003, with an effective date of January 19, 2003. On January 21, 2003, Mr. Berganza’s employee, Jose Arias, fell off of a ladder and broke his leg on the work site. The trial judge found that Mr. Berganza reported the accident to the broker three days after the accident, and that on January 29 or 30 American Millennium issued the insurance policy to Mr. Berganza, with an effective date of January 19, 2003.

However, American Millennium refused to provide workers’ compensation coverage for Mr. Arias and filed suit to rescind the policy after a review of their documents revealed that Mr. Berganza made fraudulent statements in the insurance application process. The insurer also claimed that, considering the fact that Mr. Berganza waited three days to report the accident while his application for a back-dated policy was pending, he had committed fraud.

The Appellate Court in New Jersey held that American Millennium could not deny its obligation to the injured employee based on fraud committed by the employer because the workers’ compensation policy was in effect on the date of the injury, and there was no valid cancellation. Case law, as explained in American Millennium, established that a workers’ compensation carrier cannot void a policy in an instance where the application by the employer contained fraudulent statements.

Furthermore, in the case of Alea North America Insurance Company v. Salem Masonry, The United States District Court for the District of New Jersey followed the decision in American Millennium and refused to allow a workers’ compensation policy to be rescinded for fraud on the part of the employer in obtaining the policy.

In the Alea case, Salem Masonry Company employed Nuno Alexandre to do masonry work. On the insurance application, Salem Masonry stated that none of its employees performed work at more than 15 feet above ground. Sometime after they submitted the application and were approved, Mr. Alexandre fell down an elevator shaft five to six stories high and sustained catastrophic injuries. Realizing that Alexandre fell from more than 15 feet above ground, Alea North America Insurance Company brought an action to rescind the workers’ compensation policy for fraud.

The Court followed American Millennium, which had just been decided, and stated that it stands for the proposition that a “policy issued on the untrue statements made by the employer is no defense.” The District Court also stated that the reasoning in American Millennium “is sound, and most likely captures the sentiments of New Jersey’s highest Court if it were to hear the case,” and “workers’ compensation laws were enacted at the turn of the twentieth century to protect workers.”